By IANS
Chennai : Even as the four government-run non-life insurance firms have hired foreign consultants to suggest joint business strategies, their two major trade unions have suggested a merger into one entity to derive synergies in operations.
The unions argue that business growth could be faster if there is a single entity with strong financials than in the case of four different companies, and cite the case of Life Insurance Corp of India (LIC) as an example.
The two unions that have sought the merger are the General Insurance Employees All India Association (GIEAIA) and the All India Insurance Employees Association (AIIEA).
The four insurers are the National Insurance Co Ltd, the New India Assurance Co Ltd, the Oriental Insurance Co Ltd and the United India Insurance Co Ltd.
“Size is important for an insurer,” says J. Gurumurthy, joint secretary of AIIEA and secretary of its standing committee on general insurance, adding the financial strength of the combined entity was formidable.
As on March 31, their combined investment portfolio stood at Rs.536.74 billion ($13 billion), capital reserves at Rs.94.18 billion, investment income at Rs.50.98 billion, net profit at Rs.13.10 billion and the net worth at over Rs.90 billion.
Some other benefits of merger, Gurumurthy explained, include higher underwriting and risk retention capacity, reduction in the reinsurance premium outgo, higher reinsurance premium income, healthy solvency margins and cost reduction.
“Merger will increase their solvency levels and cut their management expenses. Presently, the four companies have exceeded the statutory management expense limit of 19.5 percent of the premium earned,” says N.D. Sundaresan of GIIEA.
The four companies together earned around Rs.162.85 billion in premium during fiscal 2006-07, which could have been higher had there been a single entity, experts argue.
The most visible avenue for savings would be the rent outgo. Currently all four insurers operate from 4,305 offices and most of them have rented premises on the same street or locality.
With specialised companies selling agricultural insurance, export credit and reinsurance, the time has come to consolidate operations, say the unions.
An insurance veteran agrees on the issue of merger benefits.
“A delay in merging the four companies will result in the companies sliding down further due to mutual destruction of each other’s efforts,” says G.V. Rao, former chairman and managing director or the Oriental Insurance Co Ltd.
The one negative point the heads of insurers see in the merger proposal is the reaction of some 80,000 employees to rationalisation of offices and transfers. But the unions say they are not rigid in the redeployment issue.
Post merger, the surplus workforce could be redeployed for marketing, customer support and back-end processing. While private firms are cultivating in-house sales teams, the state-rum insurers are abolishing their marketing cadre, say the unions.
The foreign consultants hired by the four companies are Boston Consulting Group (New India Assurance, Oriental Insurance and United India Insurance) and PriceWaterHouse Coopers (National Insurance).